Column Global Economy 2016.08.19
An unusual presidential election from the time of the primaries.
The biggest factor is that all of the candidates for the US presidency: Donald Trump of the Republican Party and Hillary Clinton are opposed to the TPP.
Primarily, Clinton, as the Secretary of State in the Obama administration, has emphasized the importance of shifting focus from the Atlantic to the Pacific and has promoted the TPP as one important policy. I think we can say that she is a supporter of the TPP at heart.
However Bernie Sanders, who insists that unemployment has been increasing due to free trade, has gained considerable support including, surprisingly, from young people. As a result, Clinton at first stated that although she supported the TPP the details of the negotiations needed reconsideration but then subsequently opposed the TPP.
This presidential election is quite unusual from the time of the primaries.
In the view of the Republican Party, at a total of 17, there were too many candidates. Five candidates dropped out before the voting began and 11 dropped during the primaries. As a result, Trump, who was criticized for being insufficiently conservative and who has no political experience, became the Republican Party candidate.
However, although Trump gained a lot of support in the primaries, leading members of the Republican Party who did not like Trump had been deliberating a plan to nullify Trump's victory by supporting another candidate at the Republican Party Convention up to the time that Ted Cruz and John Kasich announced they had pulled out of the race.
Those leading members had Paul Ryan, the Speaker of the House and former candidate for the Vice Presidency, in mind as a candidate in opposition to Trump. However, they were treated coldly by Ryan. They then placed their final hopes on Ted Cruz, a supporter of the extreme right Tea Party Movement they hated. Cruz, however, was also defeated by Trump.
Regarding the Democratic Party, it was predicted that Clinton, who is female, popular and politically experienced, was regarded as a strong favourite at the beginning. However Sanders, who had belonged to the Socialist Party of America in his youth and who aims for democratic socialism, surprisingly attracted backing, gained a lot of support from delegates and has won over a part of Clinton's base.
Sanders criticized Clinton particularly for the huge contributions she received from Wall Street, and gained strong support from low-income and young people who had dissatisfaction with the establishment. As a result Clinton could not help but shift her stance closer to Sanders's.
The issues in the election are also quite unusual
Not only the course of the presidential primaries was unusual, also the issues. Policies regarding politics or diplomacy such as antiterrorism policy and anti-immigration policy are normally key issues for presidential elections. It is rare that trade policy is a major point of issue in a presidential election.
However not only Sanders, but also Trump, who is a candidate for the party of free trade, claimed that Ford moving their offices to Mexico caused unemployment in the US and emphasized the importance of an anti-free trade and anti-globalization stance.
It is said that 1936 was the last time that trade policy was a major issue in a presidential election or that the Republican candidate has advocated anti-free trade policies. To tell the truth, poor people who did not receive higher education have become new members of the Republican Party and supported Trump. The base of Trump's support is not traditional Republicans. This means that Sanders and Trump are aiming at the same base of support, emphasizing similar views.
From a different standpoint, I can say that public demand for anti-free trade and anti-globalization policies are increasing in the US. Due to claims by Trump and those who agreed with him, the percentage of people who chose economic problems as the most important issue which the US has to face had increased from 27% in January to 40% in April, according to a Gallup poll this year.
What will happen regarding approval of the TPP in US Congress?
There were some candidates for the presidency who changed their attitudes towards Free Trade Agreement after they got elected. Bill Clinton had opposed NAFTA. However, he changed his attitude after he got elected, and demanded approval of NAFTA, which Bush had concluded, in the US Congress. Also Barack Obama had aimed for renegotiation of NAFTA, but withdrew this proposal after he was elected. However trade negotiations or free trade were not big issues in the presidential election at these times.
Trump's preposterous idea to build a wall at the Mexico border, at Mexico's expense, in order to prevent immigration is impossible. However it is possible for him as president to not ask Congress to approve the TPP in the US Congress. If Trump wins, there is no possibility of him demanding the approval of the TPP in the US Congress next year.
What will happen if Clinton becomes president?
I think Clinton supports the TPP at heart but she, like the conservative section of the Democratic Party, opposes the lack of controls within the TPP on currency manipulation by Japan and other countries in order to boost exports. If Clinton becomes president, there will be a way to request the approval of the TPP in the US Congress after the US renegotiates and includes an agreement regarding currency controls. However currency fluctuations are caused by macro policy such as monetary easing. So if any agreement regarding currency controls are included in the TPP, which is a trade agreement, it will be impossible to implement macro economic policies. Therefore every country, including the US Department of the Treasury opposes this kind of agreement. As a result this scenario will not happen.
On the other hand, the incumbent, President Obama would like to establish the TPP as his legacy. However everyone involved the US Congress denies the possibility of the approval of the TPP in Congress before the presidential election. If so, the only one way left would be for Obama to request the approval in a lame duck session which is between November, after the presidential election, and January when the new congress meets.
However Sen. Hatch, the Chairman of Committee on Finance belonging to the upper house which deliberates about the TPP, said this possibility was fifty-fifty. Moreover Sen. McConnell, the floor leader of the Republican Party in the upper house, refutes the possibility. This is due to both of them having some dissatisfaction regarding the details of the TPP agreement. Anyway, in the present situation, a pessimistic view that there will be no possibility of gaining approval of the TPP in the US Congress next year is pervading.
Another election and the TPP
This year there is extraordinary interest in the presidential election. However there is also an election affecting one third of seats in the upper house and all seats in the lower house at the same time as the presidential election. What about this situation?
First, regarding the House of Representatives, there are 246 seats for the Republican Party and 188 for the Democratic Party. This is the biggest margin since the era of the Hoover administration. It is said that the Democratic Party would gain 10 to 15 more seats if the election were held now. However the Democratic Party needs 30 seats to prevent the situation whereby the Republican Party, which promotes free trade, being in a majority after the election.
How about the Senate?
Regarding the Senate, there are 54 seats for the Republican Party, 44 for Democratic Party and 2 for independents, so 5 seats are needed to reverse the situation. This time 34 seats will be up for election. Among these, 24 seats are those the Republican Party gained in 2010 thanks to criticisms of the Obama administration's radical reforms. Also seven or eight seats are a toss-up. There is a possibility that the Democratic Party will reverse the situation in the Senate.
Let's discuss about cases where the approval of the TPP will be possible. In any case, the Obama administration needs to deal with concerns raised by Senators McConnell and Hatch.
First, the scenario whereby the Democratic Party wins a majority in the Senate.
The Republican Party, which promotes free trade, will think that it will be difficult to gain approval for the TPP in the new congress and will try to approve the TPP during the lame duck session.
The establishment of the TPA, which gives authority regarding trade negotiations to the US government, passed by a close margin in the House of Representatives: 218 in favour and 208 against. On the other hand, in the Senate there were a lot of Democrats who supported free trade and so passed by a wider margin: 62 in favour and 37 against. Therefore the Republican Party will think that it will be easy to gain the approval from present members of the Democratic Party.
Next is the scenario where Trump becomes president.
Republicans do not have a good impression of Mr Trump. Therefore, in any scenario regardless of whether the Republican Party maintains a majority in the upper house or not, they will try to approve the TPP during the lame duck session.
However, considering that there will be only 16 working days for the lame duck session, each scenario will be precarious. Obama has to steel himself to lay the groundwork to persuade congress.